Capital in the twenty first century

Tai Lieu Chat Luong


CAPITAL IN THE
TWENTY-FIRST
CENTURY
Thomas Piketty
T r a n s l a t e d by A r t h u r

V)e Belknap

Goldbammer

Press of H a r v a r d University

C A M B R I D G E * M ASS A C H U S E T T S
LONDON,

ENGLAND

IOI4

Press


C o p y r i g h t ^ 2014 by rhc President and Fellows o f H a r v a r d C o l l e g e
A l l rights reserved
P r i n t e d i n Great B r i t a i n by T J International L t d , Padstow

First published as Le capital
copyright

au X X I siecle,

i o n E d i t i o n s d u Seuil

Design by D e a n B o r n s t e i n

Library

of Congress

Cataloging-in-Publication

Data

Piketty, Thomas, 1971[Capital au X X I c siecle. English]
C a p i t a l i n the twenty-first century / Thomas P i k e t t y ; translated by A r t h u r G o l d h a m m e r .
pages c m
T r a n s l a t i o n or the author's L e capital au X X I e siecle.
Includes bibliographical references and index.
ISBN 9 7 8 - 0 - 6 ^ 4 - 4 3 0 0 0 - 6 (alk. paper)

1. C a p i t a l .

1. Income d i s t r i b u t i o n .

3. W e a l t h .

I. G o l d h a m m e r , A r t h u r , translator.
HB501.P43613 1014

331.041—dci3
1013036014

4. L a b o r economics.
II. T i t l e .


Contents

Acknowledgments • vii
Introduction

• i

Part One: Income a n d

Capital

i. Income and Output • 39
2. Growth: Illusions and Realities • 72
P a r t T w o : The D y n a m i c s o f the C a p i t a l / I n c o m e

Ratio

3. The Metamorphoses of Capital • 113
4. From O l d Europe to the New World • 140
5. The Capital/Income Ratio over the Long Run • 164
6. The Capital-Labor Split in the Twenty-First Century • 199
P a r t JJjree:

T h e S t r u c t u r e of I n e q u a l i t y

7. Inequality and Concentration: Preliminary Bearings • 23ơ
8. Two Worlds ã 171
9. Inequality of Labor Income ã 304
10. Inequality of-Capital Ownership • 336
11. Merit and Inheritance in the Long Run ã 3-ơ
12. Global Inequality of Wealth in the Twenty-First Century • 430
Part Pour: Regulating Capital i n the Twenty-First

Century

13. A Social State for the Twenty-First Century • 4^1
14. Rethinking the Progressive Income Tax • 4 9 ;
15. A Global Tax on Capital • $1$
16. The Question of the Public Debt • 540
Conclusion

• $^1

Notes • 5-79
Contents in Detail • 6 $ List of Tables and Illustrations • 66s
Index • 6"* 1


Acknowledgments

This book is based on fifteen years of research

(1998-2,013)

devoted essentiallv

to understanding the historical dynamics of wealth and income. Much of this
research was done in collaboration with other scholars.
My earlier work on high-income earners in France, Les hauts

revenus

en

F r a n c e a u z o e s i e c l e (2001), had the extremely good fortune to win the enthu-

siastic support of Anthony Atkinson and Emmanuel Saez. Without them, my
modest Francocentric project would surely never have achieved the international scope it has today. Tony, who was a model for me during my graduate
school days, was the first reader of my historical work on inequality in France
and immediately took up the British case as well as a number of other countries. Together, we edited two thick volumes that came out in 1 0 0 7 and 1010,
covering twenty countries in all and constituting the most extensive database
available in regard to the historical evolution of income inequality. Emmanuel and I dealt with the US case. We discovered the vertiginous growth of income of the top

1

percent since the

1970s

and

1980s,

and our work enjoyed a

certain influence in US political debate. We also worked together on a number of theoretical papers dealing with the optimal taxation of capital and income. This book owes a great deal to these collaborative efforts.
The book was also deeply influenced by my historical work with Gilles
Postel-Vinay and Jean-Laurent Rosenthal on Parisian estate records from the
French Revolution to the present. This work helped me to understand in a
more intimate and vivid way the significance of wealth and capital and the
problems associated with measuring them. Above all, Gilles and Jean-Laurent
taught me to appreciate the many similarities, as well as differences, between
the structure of property around

1900-1910

and the structure of property

now.
A l l of this work is deeply indebted to the doctoral students and young
scholars with whom I have been privileged to work over the past fifteen years.
Beyond their direct contribution to the research on which this book draws,
their enthusiasm and energy fueled the climate of intellectual excitement in
which the work matured. I am thinking in particular of Facundo Alvaredo,
Laurent Bach, Antoine Bozio, Clement Carbonnier, Fabien Dell, Gabrielle
vii


ACKNOWLEDGMENTS

Fack, Nicolas Fremeaux, Lucie Gadenne, Julien Grenet, Elise Huilery, Camille Landais, Ioana Marinescu, Elodie Morival, Nancy Qian, Dorothee
Rouzet, Stefanie Stantcheva, Juliana Londono Velez, Guillaume SaintJacques, Christoph Schinke, Aurelie Sotura, Mathieu Valdenaire, and Gabriel Zucman. More specifically, without the efficiency, rigor, and talents of
Facundo Alvaredo, the World Top Incomes Database, to which I frequently

refer in these pages, would not exist. Without the enthusiasm and insistence
of Camille Landais, our collaborative project on "the fiscal revolution" would
never have been written. Without the careful attention to detail and impressive capacity for work of Gabriel Zucman, I would never have completed the
work on the historical evolution of the capital/income ratio in wealthy countries, which plavs a kev role in this book.
I also want to thank the institutions that made this project possible, starting with the Ecole des Hautes Etudes en Sciences Sociales, where I have
served on the faculty since 1 0 0 0 , as well as the Ecole Normale Superieure and
all the other institutions that contributed to the creation of the Paris School
of Economics, where I have been a professor since it was founded, and of
which I served as founding director from

1005

to

2007.

By agreeing to join

forces and become minority partners in a project that transcended the sum of
their private interests, these institutions helped to create a modest public
good, which I hope will continue to contribute to the development of a multipolar political economy in the twenty-first century.
Finally, thanks to Juliette, Deborah, and Helene, my three precious
daughters, for all the love and strength they give me. A n d thanks to Julia,
who shares my life and is also my best reader. Her influence and support at
every stage in the writing of this book have been essential. Without them, I
would not have had the energy to see this project through to completion.

viii

Introduction
"Social distinctions can be based only on common utility"
—Declaration of the Rights of Man and the Citizen, article -\ 1789
t

The distribution of wealth is one of today s most widely discussed and controversial issues. But what do we really know about its evolution over the long
term? D o the dynamics of private capital accumulation inevitably lead to the
concentration of wealth in ever fewer hands, as Karl Marx believed in the
nineteenth century? O r do the balancing forces of growth, competition, and
technological progress lead in later stages of development to reduced inequality and greater harmony among the classes, as Simon Kuznets thought in the
twentieth century? What do we really know about how wealth and income
have evolved since the eighteenth century, and what lessons can we derive
from that knowledge for the century now under way?
These are the questions I attempt to answer in this book. Let me say at
once that the answers contained herein are imperfect and incomplete. But
they are based on much more extensive historical and comparative data than
were available to previous researchers, data covering three centuries and more
than twenty countries, as well as on a new theoretical framework that affords
a deeper understanding of the underlying mechanisms. Modern economic
growth and the diffusion of knowledge have made it possible to avoid the
Marxist apocalypse but have not modified the deep structures of capital and
inequality—or in any case not as much as one might have imagined in the
optimistic decades following World War II. When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth
century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.
There are nevertheless ways democracy can regain control over capitalism and
ensure that the general interest takes precedence over private interests, while
preserving economic openness and avoiding protectionist and nationalist reactions. The policy recommendations I propose later in the book tend in this

1

C A P I T A L IN T H E T W E N T Y - F I R S T

CENTURY

direction. Thcv arc based on lessons derived from historical experience, of
which what follows is essentially a narrative.

A D e b a t e without

Data?

Intellectual and political debate about the distribution of wealth has long
been based on an abundance of prejudice and a paucity of- fact.
To be sure, it would be a mistake to underestimate the importance of the
intuitive knowledge that everyone acquires about contemporary wealth and
income levels, even in the absence of any theoretical framework or statistical
analysis. Film and literature, nineteenth-century novels especially, are full of
detailed information about the relative wealth and living standards of different social groups, and especially about the deep structure of inequality, the
wav it is justified, and its impact on individual lives. Indeed, the novels of Jane
Austen and Honore de Balzac paint striking portraits of the distribution of
wealth in Britain and France between 1790 and 1830. Both novelists were intimately acquainted with the hierarchy of wealth in their respective societies.
They grasped the hidden contours of wealth and its inevitable implications
for the lives of men and women, including their marital strategies and personal hopes and disappointments. These and other novelists depicted the effects of inequality with a verisimilitude and evocative power that no statistical or theoretical analysis can match.
Indeed, the distribution of wealth is too important an issue to be left to
economists, sociologists, historians, and philosophers. It is of interest to everyone,

and that is a good thing. The concrete, physical reality of inequality is

visible to the naked eye and naturally inspires sharp but contradictory political
judgments. Peasant and noble, worker and factory owner, waiter and banker:
each has his or her own unique vantage point and sees important aspects of how
other people live and what relations of power and domination exist between
social groups, and these observations shape each person's judgment of what is
and is not just. Hence there will always be a fundamentally subjective and psychological dimension to inequality, which inevitably gives rise to political conflict that no purportedly scientific analysis can alleviate. Democracy will never
be supplanted by a republic of experts—and that is a very good thing.
Nevertheless, the distribution question also deserves to be studied in a
systematic and methodical fashion. Without precisely defined sources, meth2


INTRODUCTION

ods, and concepts, it is possible to see everything and its opposite. Some people believe that inequality is always increasing and that the world is by definition always becoming more unjust. Others believe that inequality is naturally
decreasing, or that harmony comes about automatically, and that in any case
nothing should be done that might risk disturbing this happy equilibrium.
Given this dialogue of the deaf, in which each camp justifies its own intellectual laziness by pointing to the laziness of the other, there is a role for research
that is at least systematic and methodical if not fully scientific. Expert analysis
will never put an end to the violent political conflict that inequality inevitably instigates. Social scientific research is and always will be tentative and imperfect. It does not claim to transform economics, sociology; and history into
exact sciences. But by patiently searching for facts and patterns and calmly
analyzing the economic, social, and political mechanisms that might explain
them, it can inform democratic debate and focus attention on the right questions. It can help to redefine the terms of debate, unmask certain preconceived or fraudulent notions, and subject all positions to constant critical
scrutiny. In my view, this is the role that intellectuals, including social scientists, should play, as citizens like any other but with the good fortune to have
more time than others to devote themselves to study (and even to be paid for
it—a signal privilege).
There is no escaping the fact, however, that social science research on the
distribution of wealth was for a long time based on a relatively limited set of
firmly established facts together with a wide variety of purely theoretical speculations. Before turning in greater detail to the sources I tried to assemble in
preparation for writing this book, I want to give a quick historical overview of
previous thinking about these issues.

MalthuSy

Young,

a n d the French

Revolution

When classical political economy was born in England and France in the late
eighteenth and early nineteenth century, the issue of distribution was already
one of the key questions. Everyone realized that radical transformations were
under way, precipitated by sustained demographic growth—a previously unknown phenomenon—coupled with a rural exodus and the advent of the Industrial Revolution. How

would these upheavals affect the distribution of wealth,

the social structure, and the political equilibrium of European society?
3


C A P I T A L IN T H E T W E N T Y - F I R S T C E N T U R Y

Thomas Malthus, who in 1798 published his Essay

For
Population,

on the Principle

of

there could be no doubt: the primary threat was overpopulation.

1

Although his sources were thin, he made the best he could of them. One
particularly important influence was the travel diary published by Arthur
Young, an English agronomist who traveled extensively in France, from
Calais to the Pyrenees and from Brittany to Franche-Comte, in
on

1787-1788,

the eve of the Revolution. Young wrote of the poverty of the French

countryside.
His

vivid essay was by no means totally inaccurate. France at that time

was bv far the most populous country in Europe and therefore an ideal place
to observe. The kingdom could already boast of a population of 20 million in
1700, compared to only 8 million for Great Britain (and $ million for England alone). The French population increased steadily throughout the eighteenth century, from the end of Louis X I V s reign to the demise of Louis
XVI,

and by 1780 was close to 30 million. There is every reason to believe that

this unprecedentedly rapid population growth contributed to a stagnation of
agricultural wages and an increase in land rents in the decades prior to the
explosion of 1789. Although this demographic shift was not the sole cause of

the French Revolution, it clearly contributed to the growing unpopularity
of the aristocracy and the existing political regime.
Nevertheless, Youngs account, published in 1792, also bears the traces of
nationalist prejudice and misleading comparison. The great agronomist found
the inns in which he stayed thoroughly disagreeable and disliked the manners
of the women who waited on him. Although many of his observations were
banal and anecdotal, he believed he could derive universal consequences from
them. He was mainly worried that the mass poverty he witnessed would lead
to political upheaval. In particular, he was convinced that only the F^nglish
political system, with separate houses of Parliament for aristocrats and commoners and veto power for the nobility, could allow for harmonious and peaceful development led by responsible people. He was convinced that France was
headed for ruin when it decided in

1789-1790

to allow both aristocrats and

commoners to sit in a single legislative body. It is no exaggeration to say that
his whole account was overdetermined by his fear of revolution in France.
Whenever one speaks about the distribution of wealth, politics is never very
far behind, and it is difficult for anyone to escape contemporary class prejudices and interests.
4


INTRODUCTION

When Reverend Malthus published his famous Essay

in 1798, he reached

conclusions even more radical than Youngs. Like his compatriot, he was very

afraid of the new political ideas emanating from France, and to reassure himself that there would be no comparable upheaval in Great Britain he argued
that all welfare assistance to the poor must be halted at once and that reproduction by the poor should be severely scrutinized lest the world succumb to
overpopulation leading to chaos and misery. It is impossible to understand
Malthuss exaggeratedly somber predictions without recognizing the way fear
gripped much of the European elite in the

Ricardo:

The Principle

1790s.

of Scarcity

In retrospect, it is obviously easy to make fun of these prophecies of doom. It
is important to realize, however, that the economic and social transformations of the late eighteenth and early nineteenth centuries were objectively
quite impressive, not to say traumatic, for those who witnessed them. Indeed,
most contemporary observers—and not only Malthus and Young—shared
relatively dark or even apocalyptic views of the long-run evolution of the distribution of wealth and class structure of society. This was true in particular
of David Ricardo and Karl Marx, who were surely the two most influential
economists of the nineteenth century and who both believed that a small social group—landowners for Ricardo, industrial capitalists for Marx—would
inevitably claim a steadily increasing share of output and income.
For

tion

2

Ricardo, who published his P r i n c i p l e s of P o l i t i c a l E c o n o ? n y a n d

Taxa-

in 1817, the chief concern was the long-term evolution of land prices and

land rents. Like Malthus, he had virtually no genuine statistics at his disposal.
He nevertheless had intimate knowledge of the capitalism of his time. Born
into a family of Jewish financiers with Portuguese roots, he also seems to have
had fewer political prejudices than Malthus, Young, or Smith. He was influenced by the Malthusian model but pushed the argument farther. He was
above all interested in the following logical paradox. Once both population
and output begin to grow steadily, land tends to become increasingly scarce
relative to other goods. The law of supply and demand then implies that the price
of land will rise continuously, as will the rents paid to landlords. The landlords will therefore claim a growing share of national income, as the share
available to the rest of the population decreases, thus upsetting the social
5


C A P I T A L IN T H E T W E N T Y - F I R S T C E N T U R Y

equilibrium. For Ricardo, the only logically and politically acceptable answer
was to impose a steadily increasing tax on land rents.
This somber prediction proved wrong: land rents did remain high for an
extended period, but in the end the value of farm land inexorably declined
relative to other forms of wealth as the share of agriculture in national income
decreased. Writing in the

1810s,

Ricardo had no way of anticipating the im-

portance of technological progress or industrial growth in the years ahead.

Like Malthus and Young, he could not imagine that humankind would ever
be totally freed from the alimentary imperative.
His insight into the price of land is nevertheless interesting: the "scarcity
principle" on which he relied meant that certain prices might rise to very high
levels over many decades. This could well be enough to destabilize entire societies. The price system plays a key role in coordinating the activities of millions of individuals—indeed, today, billions of individuals in the new global
economy. The problem is that the price system knows neither limits nor
morality.
It would be a serious mistake to neglect the importance of the scarcity
principle for understanding the global distribution of wealth in the twentyfirst century. To convince oneself of this, it is enough to replace the price of
farmland in Ricardo s model by the price of urban real estate in major world
capitals, or, alternatively, by the price of oil. In both cases, if the trend over the
period

1970-1010

is extrapolated to the period

1010-2050

or

2010-2100,

the

result is economic, social, and political disequilibria of considerable magnitude, not only between but within countries—disequilibria that inevitably
call to mind the Ricardian apocalypse.
To be sure, there exists in principle a quite simple economic mechanism
that should restore equilibrium to the process: the mechanism of supply and
demand. If the supply of any good is insufficient, and its price is too high,

then demand for that good should decrease, which should lead to a decline in
its price. In other words, if real estate and oil prices rise, then people should
move to the country or take to traveling about by bicycle (or both). Never
mind that such adjustments might be unpleasant or complicated; they might
also take decades, during which landlords and oil well owners might well accumulate claims on the rest of the population so extensive that they could
easily come to own everything that can be owned, including rural real estate
and bicycles, once and for all. As always, the worst is never certain to arrive.
3

6


INTRODUCTION

It is much too soon to warn readers that by

2050

they may be paying rent to

the emir of Qatar. I will consider the matter in due course, and my answer
will be more nuanced, albeit only moderately reassuring. But it is important
for now to understand that the interplay of supply and demand in no way
rules out the possibility of a large and lasting divergence in the distribution of
wealth linked to extreme changes in certain relative prices. This is the principal implication of Ricardo's scarcity principle. But nothing obliges us to roll
the dice.

M a r x : The Principle

ofInfinite

Accumulation

By the time Marx published the first volume of Capital

in 1867, exactly one-

half century after the publication of Ricardo's Principles,

economic and social

realities had changed profoundly: the question was no longer whether farmers could feed a growing population or land prices would rise sky high but
rather how to understand the dynamics of industrial capitalism, now in full
blossom.
The

most striking fact of the day was the misery of the industrial prole-

tariat. Despite the growth of the economy, or perhaps in part because of it,
and because, as well, of the vast rural exodus owing to both population growth
and increasing agricultural productivity, workers crowded into urban slums.
The

working day was long, and wages wxre very low. A new urban misery

emerged, more visible, more shocking, and in some respects even more extreme than the rural misery of the O l d Regime. Germinal,
Les Miserables

Oliver

Twist,

and

did not spring from the imaginations of their authors, any

more than did laws limiting child labor in factories to children older than eight
(in France in

1841)

or ten in the mines (in Britain in

T a b l e a u d e V e t a t p h y s i q u e e t m o r a l des o u v r i e r s employes

tures,

1842).

Dr. Villerme's

d a n s les

manufac-

published in France in 1840 (leading to the passage of a timid new child

labor law in
Working

Class

1841),

described the same sordid reality as The C o n d i t i o n of t h e

in England,

which Friedrich Engels published in 1845/

In fact, all the historical data at our disposal today indicate that it was not
until the second half—or even the final third—of the nineteenth century
that a significant rise in the purchasing power of wages occurred. From the
first to the sixth decade of the nineteenth century, workers' wages stagnated
at very low levels—close or even inferior to the levels of the eighteenth and
7


C A P I T A L IN T H E T W E N T Y - F I R S T

CENTURY

previous centuries. This long phase of wage stagnation, which we observe in
Britain as well as France, stands out all the more because economic growth
was accelerating in this period. The

capital share of national income—industrial

profits, land rents, and building rents—insofar as can be estimated with the
imperfect sources available today, increased considerably in both countries in

the first half of the nineteenth century. It would decrease slightly in the final
5

decades of the nineteenth century, as wages partly caught up with growth.
The

data we have assembled nevertheless reveal no structural decrease in ine-

quality prior to World War I. What we see in the period

1870-1914

is at best

a stabilization of inequality at an extremely high level, and in certain respects
an endless inegalitarian spiral, marked in particular by increasing concentration of wealth. It is quite difficult to say where this trajectory would have led
without the major economic and political shocks initiated by the war. With
the aid of historical analysis and a little perspective, we can now see those
shocks as the only forces since the Industrial Revolution powerful enough to
reduce inequality.
In any case, capital prospered in the

1840s

and industrial profits grew,

while labor incomes stagnated. This was obvious to everyone, even though in
those days aggregate national statistics did not yet exist. It was in this context that the first communist and socialist movements developed. The central argument was simple: What was the good of industrial development,
what was the good of all the technological innovations, toil, and population
movements if, after half a century of industrial growth, the condition of

the masses was still just as miserable as before, and all lawmakers could do
was prohibit factory labor by children under the age of eight? The bankruptcy of the existing economic and political system seemed obvious. People
therefore wondered about its long-term evolution: what could one say
about it?
This was the task Marx set himself. In 1848, on the eve of the "spring of
nations" (that is, the revolutions that broke out across Europe that spring), he
published The

Communist

Manifesto,

a short, hard-hitting text whose first

chapter began with the famous words "A specter is haunting Europe—the
specter of communism." The text ended with the equally famous prediction
6

of revolution: "The development of Modern Industry, therefore, cuts from
under its feet the very foundation on which the bourgeoisie produces and appropriates products. What the bourgeoisie therefore produces, above all, are
8


INTRODUCTION

its own gravediggers. Its fall and the victory of the proletariat are equally
inevitable."
Over the next two decades, Marx labored over the voluminous treatise
that would justify this conclusion and propose the first scientific analysis of
capitalism and its collapse. This work would remain unfinished: the first volume of Capital

was published in 1867, but Marx died in 1883 without having

completed the two subsequent volumes. His friend Engels published them
posthumously after piecing together a text from the sometimes obscure fragments of manuscript Marx had left behind.
Like Ricardo, Marx based his work on an analysis of the internal logical
contradictions of the capitalist system. He therefore sought to distinguish
himself-

from

both bourgeois economists (who saw the market as a self-

regulated system, that is, a system capable of achieving equilibrium on its own
without major deviations, in accordance with Adam Smith's image of the
u

invisible hand" and Jean-Baptiste Say's "law" that
demand), and

Utopian

production

creates its own

socialists and Proudhonians, who in Marx's view were

content to denounce the misery of the working class without

proposing

a

truly scientific analysis of the economic processes responsible for it. In short,
Marx took the Ricardian model of the price of capital and the principle of
scarcity as the basis of a more thorough analysis of the dynamics of capitalism
in a world where capital was primarily industrial (machinery, plants, etc.)
rather than landed property, so that in principle there was no limit to the
amount of capital that could be accumulated. In fact, his principal conclusion
was what one might call the "principle of infinite accumulation," that is, the
inexorable tendency for capital to accumulate and become concentrated in
ever fewer hands, with no natural limit to the process. This is the basis of
Marx's prediction of an apocalyptic end to capitalism: either the rate of return on capital would steadily diminish (thereby killing the engine of accumulation and leading to violent conflict among capitalists), or capital s share
of national income would increase indefinitely (which sooner or later would
unite the workers in revolt). In either case, no stable socioeconomic or political equilibrium was possible.
Marx's dark prophecy came no closer to being realized than Ricardo's. In
the last third of the nineteenth century, wages finally began to increase: the
improvement in the purchasing power of workers spread everywhere, and this
changed the situation radically, even if extreme inequalities persisted and in
9


C A P I T A L IN T H E T W E N T Y - F I R S T C E N T U R Y

some respects continued to increase until World War I. The communist revolution did indeed take place, but in the most backward country in Europe,
Russia, where the Industrial Revolution had scarcely begun, whereas the most
advanced European countries explored other, social democratic avenues—
fortunatelv for their citizens. Like his predecessors, Marx totally neglected
the possibility of durable technological progress and steadily increasing productivity, which is a force that can to some extent serve as a counterweight to

the process of accumulation and concentration of private capital. He no
doubt lacked the statistical data needed to refine his predictions. He probably
suffered as well from having decided on his conclusions in 1848, before embarking on the research needed to justify them. Marx evidently wrote in great
political fervor, which at times led him to issue hasty pronouncements from
which it was difficult to escape. That is why economic theory needs to be
rooted in historical sources that are as complete as possible, and in this respect
Marx did not exploit all the possibilities available to him. What is more,
8

he devoted little thought to the question of how a society in which private
capital had been totally abolished would be organized politically and economically—a complex issue if ever there was one, as shown by the tragic
totalitarian experiments undertaken in states where private capital was
abolished.
Despite these limitations, Marx's analysis remains relevant in several respects. First, he began with an important question (concerning the unprecedented concentration of wealth during the Industrial Revolution) and tried
to answer it with the means at his disposal: economists today would do well
to take inspiration from his example. Even more important, the principle of
infinite accumulation that Marx proposed contains a key insight, as valid for
the study of the twenty-first century as it was for the nineteenth and in some
respects more worrisome than Ricardo's principle of scarcity. If the rates of
population and productivity growth are relatively low, then accumulated
wealth naturally takes on considerable importance, especially if it grows to
extreme proportions and becomes socially destabilizing. In other words, low
growth cannot adequately counterbalance the Marxist principle of infinite
accumulation: the resulting equilibrium is not as apocalyptic as the one predicted by Marx but is nevertheless quite disturbing. Accumulation ends at a
finite level, but that level may be high enough to be destabilizing. In particular, the very high level of private wealth that has been attained since the
10

1980s

INTRODUCTION

and

1990s

in the wealthy countries of Europe and in Japan, measured in years

of national income, directly reflects the Marxian logic.

From

M a r x to Kuznets,

or Apocalypse

to Fairy

Tale

Turning from the nineteenth-century analyses of Ricardo and Marx to the
twentieth-century analyses of Simon Kuznets, we might say that economists'
no doubt overly developed taste for apocalyptic predictions gave way to a
similarly excessive fondness for fairy tales, or at any rate happy endings. According to Kuznets's theory, income inequality would automatically decrease
in advanced phases of capitalist development, regardless of economic policy
choices or other differences between countries, until eventually it stabilized at
an acceptable level. Proposed in 1955, this was really a theory of the magical
postwar years referred to in France as the "Trente Glorieuses," the thirty glorious years from

1945

to 1975. For Kuznets, it was enough to be patient, and
9

before long growth would benefit everyone. The philosophy of the moment
was summed up in a single sentence: "Growth is a rising tide that lifts all
boats." A similar optimism can also be seen in Robert Solow s 1956 analysis of
the conditions necessary for an economy to achieve a "balanced growth path,"
that is, a growth trajectory along which all variables—output, incomes, profits, wages, capital, asset prices, and so on—would progress at the same pace, so
that every social group would benefit from growth to the same degree, with
no major deviations from the norm. Kuznets's position was thus diametri10

cally opposed to the Ricardian and Marxist idea of an inegalitarian spiral and
antithetical to the apocalyptic predictions of the nineteenth century.
In order to properly convey the considerable influence that Kuznets's theory enjoyed in the

1980s

and

1990s

and to a certain extent still enjoys today, it

is important to emphasize that it was the first theory of this sort to rely on a
formidable statistical apparatus. It was not until the middle of the twentieth
century, in fact, that the first historical series of income distribution statistics
became available with the publication in 195; of Kuznets's monumental
S h a r e s of Upper

I n c o m e G r o u p s i n I n c o m e a n d S a v i n g s . Kuznets's series dealt

with only one country (the United States) over a period of thirty-five years
(191^-1948).

It was nevertheless a major contribution, which drew on two

sources of data totally unavailable to nineteenth-century authors: US federal
income tax returns (which did not exist before the creation of the income tax
11


C A P I T A L IN T H E T W E N T Y - F I R S T C E N T U R Y

in 1910 and Kuznets s own estimates of US national income from a few years
earlier. This was the very first attempt to measure social inequality on such an
ambitious scale.

11

It is important to realize that without these two complementary and indispensable datasets, it is simply impossible to measure inequality in the income distribution or to gauge its evolution over time. To be sure, the first
attempts to estimate national income in Britain and France date back to the
late seventeenth and early eighteenth century, and there would be many more
such attempts over the course of the nineteenth century. But these were isolated estimates. It was not until the twentieth century, in the years between
the two world wars, that the first yearly series of national income data were
developed bv economists such as Kuznets and John W . Kendrick in the
United States, Arthur Bowley and Colin Clark in Britain, and L . Duge de
Bernonville in France. This type of data allows us to measure a country's total
income. In order to gauge the share of high incomes in national income, we
also need statements of income. Such information became available when

many countries adopted a progressive income tax around the time of World
War I (1913 in the United States, 1914 in France, 1909 in Britain, 1922 in India,
1932 in Argentina).

12

It is crucial to recognize that even where there is no income tax, there are
still all sorts of statistics concerning whatever tax basis exists at a given point
in time (for example, the distribution of the number of doors and windows by
departement

in nineteenth-century France, which is not without interest),

but these data tell us nothing about incomes. What is more, before the requirement to declare one's income to the tax authorities was enacted in law,
people were often unaware of the amount of their own income. The same is
true of the corporate tax and wealth tax. Taxation is not only a way of requiring all citizens to contribute to the financing of public expenditures and projects and to distribute the tax burden as fairly as possible; it is also useful for
establishing classifications and promoting knowledge as well as democratic
transparency.
In any event, the data that Kuznets collected allowed him to calculate the
evolution of the share of each decile, as well as of the upper centiles, of the
income hierarchy in total US national income. What did he find? He noted a
sharp reduction in income inequality in the United States between 1913 and
1948. More specifically, at the beginning of this period, the upper decile of the
12


INTRODUCTION

income distribution (that is, the top

10

percent of US earners) claimed

percent of annual national income. By the late
cile had decreased to roughly

30-35

1940s,

45-50

the share of the top de-

percent of national income. This decrease

of nearly 10 percentage points was considerable: for example, it was equal to
half the income of the poorest 50 percent of Americans. The reduction of
13

inequality was clear and incontrovertible. This was news of considerable importance, and it had an enormous impact on economic debate in the postwar
era in both universities and international organizations.
Malthus, Ricardo, Marx, and many others had been talking about inequalities for decades without citing any sources whatsoever or any methods
for comparing one era with another or deciding between competing hypotheses. Now,

for the first time, objective data were available. Although the infor-

mation was not perfect, it had the merit of existing. What is more, the work
of compilation was extremely well documented: the weighty volume that

Kuznets published in 1953 revealed his sources and methods in the most minute detail, so that every calculation could be reproduced. A n d besides that,
Kuznets was the bearer of good news: inequality was shrinking.

The Kuznets

C u r v e : Good

News

in the Midst

of the Cold

War

In fact, Kuznets himself was well aware that the compression of high US incomes between 1913 and 1948 was largely accidental. It stemmed in large part
from multiple shocks triggered by the Great Depression and World War II
and had little to do with any natural or automatic process. In his 1953 work, he
analyzed his series in detail and warned readers not to make hasty generalizations. But in December 1954, at the Detroit meeting of the American Economic
Association, of which he was president, he offered a far more optimistic interpretation of his results than he had given in 1953. It was this lecture, published
in 1955 under the title "Economic Growth and Income Inequality," that gave
rise to the theory of the "Kuznets curve."
According to this theory, inequality everywhere can be expected to follow
a "bell curve." In other words, it should first increase and then decrease over
the course of industrialization and economic development. According to
Kuznets, a first phase of naturally increasing inequality associated with the
early stages of industrialization, which in the United States meant, broadly
speaking, the nineteenth century, would be followed by a phase of sharply
13

C A P I T A L IN T H E T W E N T Y - F I R S T C E N T U R Y

decreasing inequality, which in the United States allegedly began in the first
half of the twentieth century.
Kuznets's 19$$ paper is enlightening. After reminding readers of all the
reasons for interpreting the data cautiously and noting the obvious importance of exogenous shocks in the recent reduction of- inequality in the United
States, Kuznets suggests, almost innocently in passing, that the internal logic
of economic development might also yield the same result, quite apart from
anv policv intervention or external shock. The idea was that inequalities increase in the early phases of industrialization, because only a minority is prepared to benefit from the new wealth that industrialization brings. Later, in
more advanced phases of development, inequality automatically decreases as a
larger and larger fraction of the population partakes of the fruits of economic
growth.

14

The "advanced phase" of industrial development is supposed to have begun toward the end of the nineteenth or the beginning of the twentieth century in the industrialized countries, and the reduction of inequality observed
in the United States between 1913 and 1948 could therefore be portrayed as
one instance of a more general phenomenon, which should theoretically reproduce itself everywhere, including underdeveloped countries then mired in
postcolonial poverty. The data Kuznets had presented in his 1953 book suddenly became a powerful political weapon. He was well aware of the highly
15

speculative nature of his theorizing. Nevertheless, by presenting such an
16

optimistic theory in the context of a "presidential address" to the main professional association of US economists, an audience that was inclined to believe
and disseminate the good news delivered by their prestigious leader, he knew
that he would wield considerable influence: thus the "Kuznets curve" was
born. In order to make sure that everyone understood what was at stake, he
took care to remind his listeners that the intent of his optimistic predictions

was quite simply to maintain the underdeveloped countries "within the orbit
of the free world." ' In large part, then, the theory of the Kuznets curve was a
1

product of the Cold War.
To avoid any misunderstanding, let me say that Kuznets's work in establishing the first US national accounts data and the first historical series of
inequality measures was of the utmost importance, and it is clear from reading his books (as opposed to his papers) that he shared the true scientific
ethic. In addition, the high growth rates observed in all the developed coun14


INTRODUCTION

tries in the post-World War II period were a phenomenon of great significance, as was the still more significant fact that all social groups shared in the
fruits of growth. It is quite understandable that the Trente Glorieuses fostered a certain degree of optimism and that the apocalyptic predictions of
the nineteenth century concerning the distribution of wealth forfeited some
of their popularity.
Nevertheless, the magical Kuznets curve theory was formulated in large
part for the wrong reasons, and its empirical underpinnings were extremely
fragile. The sharp reduction in income inequality that we observe in almost
all the rich countries between 1914 and 1945 was due above all to the world
wars and the violent economic and political shocks they entailed (especially
for people with large fortunes). It had little to do with the tranquil process of
intersectoral mobility described by Kuznets.

Putting

the D i s t r i b u t i o n a l Question
Economic

Back a t the H e a r t of

Analysis

The question is important, and not just for historical reasons. Since the

1970s,

income inequality has increased significantly in the rich countries, especially
the United States, where the concentration of income in the first decade of the
twenty-first century regained—indeed, slightly exceeded—the level attained
in the second decade of the previous century. It is therefore crucial to understand clearly why and how inequality decreased in the interim. To be sure, the
very rapid growth of poor and emerging countries, especially China, may well
prove to be a potent force for reducing inequalities at the global level, just as
the growth of the rich countries did during the period

1945-1975.

But this

process has generated deep anxiety in the emerging countries and even
deeper anxiety in the rich countries. Furthermore, the impressive disequilibria observed in recent decades in the financial, oil, and real estate markets
have naturally aroused doubts as to the inevitability of the "balanced growth
path" described by Solow and Kuznets, according to whom all key economic
variables are supposed to move at the same pace. W i l l the world in

2050

or

i i o o be owned by traders, top managers, and the superrich, or will it belong

to the oil-producing countries or the Bank of China? O r perhaps it will be
owned by the tax havens in which many of these actors will have sought refuge. It would be absurd not to raise the question of who
15

will own what and


C A P I T A L IN T H E T W E N T Y - F I R S T

CENTURY

simply to assume from the outset that growth is naturally "balanced" in the
long run.
In a way, we are in the same position at the beginning of the twenty-first
century as our forebears were in the early nineteenth century: we are witnessing impressive changes in economies around the world, and it is very difficult
to know how extensive they will turn out to be or what the global distribution of wealth, both within and between countries, will look like several decades from now. The economists of the nineteenth century deserve immense
credit for placing the distributional question at the heart ok economic analysis
and

for seeking to study long-term trends. Their answers were not always

satisfactory but at least thev were asking the right questions. There is no fundamental reason why we should believe that growth is automatically balanced. It is long since past the time when we should have put the question of
inequality back at the center of economic analysis and begun asking questions
first raised in the nineteenth century. For far too long, economists have neglected the distribution of wealth, partly because of Kuznets's optimistic
conclusions and partly because of the profession's undtie enthusiasm for simplistic mathematical models based on so-called representative agents. If the
18

question of inequality is again to become central, we must begin by gathering
as extensive as possible a set of historical data for the purpose of understanding past and present trends. For it is by patiently establishing facts and patterns and then comparing different countries that we can hope to identify the
mechanisms at work and gain a clearer idea of the future.

The Sources

Used in This

Book

This book is based on sources of two main types, which together make it possible to study the historical dynamics of wealth distribution: sources dealing
with the inequality and distribution of income, and sources dealing with the
distribution of wealth and the relation of wealth to income.
To begin with income: in large part, my work has simply broadened the
spatial and temporal limits of Kuznets's innovative and pioneering work on
the evolution of income inequality in the United States between 1913 and 1948In this way I have been able to put Kuznets's findings (which are quite accurate) into a wider perspective and thus radically challenge his optimistic view
of the relation between economic development and the distribution of wealth.
16


INTRODUCTION

Oddly, no one has ever systematically pursued Kuznets s work, no doubt in
part because the historical and statistical study of tax records falls into a sort
of academic no-man's-land, too historical for economists and too economistic
k>r historians. That is a pity, because the dynamics of income inequality can
only be studied in a long-run perspective, which is possible only if one makes
use of tax records.

19

I began by extending Kuznets's methods to France, and I published the
results of that study in a book that appeared in

2001.

2 0

I then joined forces

with several colleagues—Anthony Atkinson and Emmanuel Saez foremost
among them—and with their help was able to expand the coverage to a much
wider range of countries. Anthony Atkinson looked at Great Britain and a
number of other countries, and together we edited two volumes that appeared in

2007

and

2010,

in which we reported the results for some twenty

countries throughout the world. Together with Emmanuel Saez, I extended
21

Kuznets's series for the United States by half a century. Saez himself looked
22

at a number of other key countries, such as Canada and Japan. Manv other
investigators contributed to this joint effort: in particular, Facundo Alvaredo
studied Argentina, Spain, and Portugal; Fabien Dell looked at Germany and
Switzerland; and Abhijit Banerjeee and I investigated the Indian case. With

the help of Nancy Qian I was able to work on China. A n d so o n .

21

In each case, we tried to use the same types of sources, the same methods,
and the same concepts. Deciles and centiles of high incomes were estimated
from tax data based on stated incomes (corrected in various ways to ensure
temporal and geographic homogeneity of data and concepts). National income and average income were derived from national accounts, which in
some cases had to be fleshed out or extended. Broadly speaking, our data series begin in each country when an income tax was established (generally between 1910 and 1920 but in some countries, such as Japan and Germany, as
early as the

1880s

and in other countries somewhat later). These series are

regularly updated and at this writing extend to the early

2010s.

Ultimately, the World Top Incomes Database ( W T I D ) , which is based
on the joint work of some thirty researchers around the world, is the largest
historical database available concerning the evolution of income inequality; it
is the primary source of data for this book."

4

The book's second most important source of data, on which I will actually
draw first, concerns wealth, including both the distribution of wealth and its
17

C A P I T A L IN T H E T W E N T Y - F I R S T C E N T U R Y

relation to income. Wealth also generates income and is therefore important
on the income study side of things as well. Indeed, income consists of two components: income from labor (wages, salaries, bonuses, earnings from nonwage
labor, and other remuneration statutorily classified as labor related) and income from capital (rent, dividends, interest, profits, capital gains, royalties,
and other income derived from the mere fact of owning capital in the form of
land, real estate, financial instruments, industrial equipment, etc., again regardless of its precise legal classification). The W T I D contains a great deal of
information about the evolution of income from capital over the course of the
twentieth centurv. It is nevertheless essential to complete this information by
looking at sources directly concerned with wealth. Here I rely on three distinct types of historical data and methodology, each of which is complementary to the others.

25

In the first place, just as income tax returns allow us to study changes in
income inequality, estate tax returns enable us to study changes in the inequality of wealth. This approach was introduced by Robert Lampman in 1962 to
26

study changes in the inequality of wealth in the United States from 1922 to
1956. Later, in 1978, Anthony Atkinson and Alan Harrison studied the British case from

1923

to

1972.

27

These results were recently updated and extended

to other countries such as France and Sweden. Unfortunately, data are available for fewer countries than in the case of income inequality. In a few cases,
however, estate tax data extend back much further in time, often to the beginning of the nineteenth century, because estate taxes predate income taxes. In
particular, I have compiled data collected by the French government at various times and, together with Gilles Postel-Vinay and Jean-Laurent Rosenthal,
have put together a huge collection of individual estate tax returns, with
which it has been possible to establish homogeneous series of data on the concentration of wealth in France since the Revolution. This will allow us to see
28

the shocks due to World War I in a much broader context than the series dealing with income inequality (which unfortunately date back only as far as 1910
or so). The work ofJesper Roine and Daniel Waldenstrom on Swedish historical sources is also instructive.

29

The data on wealth and inheritance also enable us to study changes in the
relative importance of inherited wealth and savings in the constitution of
fortunes and the dynamics of wealth inequality. This work is fairly complete
in the case of France, where the very rich historical sources offer a unique
18